Exhibit 10.3


 


EXTENSION OPTION AGREEMENT


 


This Extension Option Agreement, dated effective as of April 14,
2008, is between Rock Energy Resources, Inc. f/k/a Hanover Gold Company, Inc.,
Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW Casmalia Properties, LLC, Phoenix
Energy, LLC, and Orcutt Properties, LLC (“Agreement”).


 


R E C I T A L S:


 


WHEREAS, Rock Energy
Partners, LP, Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW Casmalia Properties,
LLC, Phoenix Energy, LLC, and Orcutt Properties, LLC. entered into the Base
Agreement, dated as of December 1, 2007 (which was subsequently amended by
the Amendment to Base Agreement dated February 15, 2008 executed by Rock
Energy Resources, Inc. f/k/a Hanover Gold Company, Inc., Santa Maria
Pacific, LLC, Gitte-Ten, LLC, NW Casmalia Properties, LLC, Phoenix Energy, LLC
and Orcutt Properties, LLC and Second Amendment to Base Agreement dated as of March 25,
2008 executed by Rock Energy Resources, Inc. f/k/a Hanover Gold Company, Inc.,
Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW Casmalia Properties, LLC, Phoenix
Energy, LLC and Orcutt Properties, LLC) (“Base Agreement”);


 


WHEREAS, the Base
Agreement provided for entry into the Development/Earn-in Agreement between
Rock Energy Partners, LP, Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW Casmalia
Properties, LLC, Phoenix Energy, LLC, and Orcutt Properties, LLC, dated as of December 14,
2007 (which was subsequently amended by the Amended Development Agreement dated
February 15, 2008 between Rock Energy Resources, Inc. f/k/a Hanover
Gold Company, Inc., Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW Casmalia
Properties, LLC, Phoenix Energy, LLC and Orcutt Properties, LLC and the Second
Amended Development Agreement dated as of March 25, 2008 between Rock
Energy Resources, Inc. f/k/a Hanover Gold Company, Inc., Santa Maria
Pacific, LLC, Gitte-Ten, LLC, NW Casmalia Properties, LLC, Phoenix Energy, LLC,
and Orcutt Properties, LLC) (“Development Agreement”);


 


WHEREAS, RER has
requested that the SMP Parties extend the Option IV Exercise Period set forth
in the Development Agreement; and


 


WHEREAS, the Parties
desire to further amend the Development Agreement as set forth herein.


 


NOW, THEREFORE, in good and valuable
consideration, the parties agree as follows:


 

















 


ARTICLE I


 


DEFINITIONS


 


The definitions
of the terms contained in the Development Agreement are incorporated
herein.  The following additional terms
as used in this Agreement shall have the meanings indicated below unless the
context otherwise requires:


 


1.1           “Default” shall mean the occurrence
of any conditions, events or acts which would constitute an Event of Default or
which with the giving of notice or lapse of time or both would, unless cured or
waived, become an Event of Default.


 


1.2           “Development Agreement” shall mean
the Development/Earn-In Agreement between Rock Energy Partners, LP, Santa Maria
Pacific, LLC, Gitte-Ten, LLC, NW Casmalia Properties, LLC, Phoenix Energy, LLC,
and Orcutt Properties, LLC., dated as of December 14, 2007, together with
all exhibits and schedules attached thereto and referenced therein and any and
all properly executed amendments thereto that expressly provide that they are
to supplement, amend or revise the Development Agreement (including the Amended
Development Agreement dated February 15, 2008 between Rock Energy
Resources, Inc. f/k/a Hanover Gold Company, Inc., Santa Maria
Pacific, LLC, Gitte-Ten, LLC, NW Casmalia Properties, LLC, Phoenix Energy, LLC
and Orcutt Properties, LLC and the Second Amended Development Agreement, dated as
of March 25, 2008, between Rock Energy Resources, Inc. f/k/a Hanover
Gold Company, Inc., Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW Casmalia
Properties, LLC, Phoenix Energy, LLC, and Orcutt Properties, LLC).


 


1.3           “Extension Options” shall mean
Extension Option One, Extension Option Two, Extension Option Three, Extension
Option Four and/or Extension Option Five.


 


1.4           “Extension Option One” shall mean the
option granted pursuant to Article III of this Agreement which is subject
to the terms and conditions of this Agreement.


 


1.5           “Extension Option Payments” shall
mean the option payments to be made by RER pursuant Articles III, IV, V, VI and
VII to exercise Extension Option One, Extension Option Two, Extension Option
Three, Extension Option Four and Extension Option Five.


 


1.6           “Extension Option Two” shall mean the
option granted pursuant to Article IV of this Agreement which is subject
to the terms and conditions of this Agreement.


 


1.7           “Extension Option Three” shall mean
shall mean the option granted pursuant to Article V of this Agreement
which is subject to the terms and conditions of this Agreement.


 


1.8           “Extension Option Four” shall mean
shall mean the option granted pursuant to Article VI of this Agreement
which is subject to the terms and conditions of this Agreement.


 


1.9           “Extension Option Five” shall mean
shall mean the option granted pursuant to Article VII of this Agreement
which is subject to the terms and conditions of this Agreement.


 


2

















 


1.10         “Event of Default” shall mean the occurrence of any
conditions, events or acts described in Section 9.1.


 


1.11         “RER Reaffirmation and Release” shall
mean the instrument in the form of Exhibit A.


 


1.12         “SMP Parties Reaffirmation and Release”
shall mean the instrument in the form of Exhibit B.


 


Any terms defined in other provisions of this Agreement shall have the
meanings set out therein unless the context requires otherwise.


 


ARTICLE II


 


Option
Price


 


2.1           Contemporaneously with
the execution of this Agreement, as the purchase price for the Extension Option,
RER has delivered to SMP, as agent for itself and the remaining SMP Parties, RER’s
check in the amount of ONE HUNDRED AND NO/100 Dollars (U.S. $100.00) (the “Independent
Consideration”), which is in addition to and independent of any other
consideration provided hereunder.  The
Independent Consideration is non-refundable and shall be retained by Seller
under all circumstances.


 


2.2           The SMP Parties
acknowledge the receipt of the Independent Consideration and acknowledge the
sufficiency of the Independent Consideration as the purchase price for Extension
Option and to solely support this Agreement.


 


ARTICLE III


 


Extension Option
One


 


3.1           Grant
of Option.  Subject to the strict
adherence to the terms and conditions contained in this Agreement, the SMP
Parties hereby grant to RER the option to extend the Option IV Exercise Period
until the earlier of (i) 3:00 p.m. Pacific Standard Time on April 30,
2008, or (ii) occurrence of an Event of Default.


 


3.2           Notice of Intent to Exercise.  RER must deliver to the SMP Parties written
notice by RER of its intent to exercise Extension Option One.  The notice must be signed by RER and
delivered to the SMP Parties.


 


3.3           Exercise of Option.  To exercise the option granted pursuant to
this Article, RER must deliver to the SMP Parties the following prior to 3:00 p.m.
Pacific Standard Time on April 17, 2008:


 


3

















 


a.             by transfer of immediately available funds
to an account designated by the SMP Parties, the sum of Five Hundred Thousand
and 00/100 Dollars ($500,000.00); and


 


b.             a duly executed RER Reaffirmation and
Release.


 


Provided that RER timely satisfies its requirements to exercise Extension
Option One, the Option IV Exercise Period shall be extended to 3:00 p.m.
Pacific Standard Time on April 30, 2008. 
RER agrees that Thirty Thousand and 00/100 Dollars ($30,000.00) of the
Five Hundred Thousand and 00/100 Dollars ($500,000.00) payment shall be
retained by the SMP Parties and applied against legal fees and expenses
incurred in connection with the Transaction Documents.  The remaining Four Hundred Seventy Thousand
and 00/100 Dollars ($470,000.00) shall be applied as described in Article VIII.


 


ARTICLE IV


 


Extension
Option Two


 


4.1           Grant
of Option.  Subject to the strict
adherence to the terms and conditions contained in this Agreement, the SMP
Parties hereby grant to RER the option to extend the Option IV Exercise Period
until the earlier of (i) 3:00 p.m. Pacific Standard Time on May 15,
2008, or (ii) occurrence of an Event of Default.


 


4.2           Notice of Intent to Exercise.  RER must deliver to the SMP Parties written
notice by RER of its intent to exercise Extension Option Two.  The notice must be signed by RER and
delivered to the SMP Parties.


 


4.3           Exercise of Option.  To exercise the option granted pursuant to
this Article, RER must deliver to the SMP Parties the following prior to 3:00 p.m.
Pacific Standard Time on May 1, 2008:


 


a.             by transfer of immediately available funds
to an account designated by the SMP Parties, the sum of Five Hundred Thousand
and 00/100 Dollars ($500,000.00); and


 


b.             a duly executed RER Reaffirmation and
Release.


 


Provided that RER timely satisfies its requirements to exercise
Extension Option Two, the Option IV Exercise Period shall be extended to 3:00 p.m.
Pacific Standard Time on May 15, 2008.


 


4

















 


ARTICLE V


 


Extension
Option Three


 


5.1           Grant
of Option.  Subject to the strict
adherence to the terms and conditions contained in this Agreement, the SMP
Parties hereby grant to RER the option to extend the Option IV Exercise Period
until the earlier of (i) 3:00 p.m. Pacific Standard Time on June 2,
2008, or (ii) occurrence of an Event of Default.


 


5.2           Notice of Intent to Exercise.  RER must deliver to the SMP Parties written
notice by RER of its intent to exercise Extension Option Three.  The notice must be signed by RER and
delivered to the SMP Parties.


 


5.3           Exercise of Option.  To exercise the option granted pursuant to
this Article, RER must deliver to the SMP Parties the following prior to 3:00 p.m.
Pacific Standard Time on May 15, 2008:


 


a.             by transfer of immediately available funds
to an account designated by the SMP Parties, the sum of Five Hundred Thousand
and 00/100 Dollars ($500,000.00); and


 


b.             a duly executed RER Reaffirmation and
Release.


 


Provided that RER timely satisfies its requirements to exercise
Extension Option Three, the Option IV Exercise Period shall be extended to 3:00 p.m.
Pacific Standard Time on June 2, 2008.


 


ARTICLE VI


 


Extension
Option Four


 


6.1           Grant
of Option.  Subject to the strict
adherence to the terms and conditions contained in this Agreement, the SMP
Parties hereby grant to RER the option to extend the Option IV Exercise Period
until the earlier of (i) 3:00 p.m. Pacific Standard Time on June 16,
2008, or (ii) occurrence of an Event of Default.


 


6.2           Notice of Intent to Exercise.  RER must deliver to the SMP Parties written
notice by RER of its intent to exercise Extension Option Four.  The notice must be signed by RER and
delivered to the SMP Parties.


 


6.3           Exercise of Option.  To exercise the option granted pursuant to
this Article, RER must deliver to the SMP Parties the following prior to 3:00 p.m.
Pacific Standard Time on June 2, 2008:


 


a.             by transfer of immediately available funds
to an account designated by the SMP Parties, the sum of Five Hundred Thousand
and 00/100 Dollars ($500,000.00); and


 


5

















 


b.             a duly executed RER Reaffirmation and
Release.


 


Provided that RER timely satisfies its requirements to exercise
Extension Option Four, the Option IV Exercise Period shall be extended to 3:00 p.m.
Pacific Standard Time on June 16, 2008.


 


ARTICLE VII


 


Extension
Option Five


 


7.1           Grant
of Option.  Subject to the strict
adherence to the terms and conditions contained in this Agreement, the SMP
Parties hereby grant to RER the option to extend the Option IV Exercise Period
until the earlier of (i) 3:00 p.m. Pacific Standard Time on June 30,
2008, or (ii) occurrence of an Event of Default.


 


7.2           Notice of Intent to Exercise.  RER must deliver to the SMP Parties written
notice by RER of its intent to exercise Extension Option Five.  The notice must be signed by RER and
delivered to the SMP Parties.


 


7.3           Exercise of Option.  To exercise the option granted pursuant to
this Article, RER must deliver to the SMP Parties the following prior to 3:00 p.m.
Pacific Standard Time on June 15, 2008:


 


a.             by transfer of immediately available funds
to an account designated by the SMP Parties, the sum of Five Hundred Thousand
and 00/100 Dollars ($500,000.00); and


 


b.             a duly executed RER Reaffirmation and
Release.


 


Provided that RER timely satisfies its requirements to exercise
Extension Option Five, the Option IV Exercise Period shall be extended to 3:00 p.m.
Pacific Standard Time on June 30, 2008.


 


ARTICLE VIII


 


Application
of Payments


 


8.1           Ownership
of Funds.  The Extension Option Payments
provided for in this Agreement shall be the property of the SMP Parties
immediately upon receipt.  RER shall have
no right to or interest in any Extension Option Payment.


 


8.2           Application of Extension Option Payments.  If and only if RER satisfies the requirements
to exercise Option IV within the Option IV Exercise Period (as same is extended
pursuant to this Agreement), the Extension Option Payments (excluding Thirty
Thousand and 


 


6

















 


00/100 Dollars ($30,000.00) paid in connection with Extension Option
One) shall be applied as a credit against the Seven Million Three Hundred
Ninety-Nine Thousand Eight Hundred 00/100 Dollars ($7,399,800.00) payment
required to be made by RER to exercise Option IV.  In the event that RER fails to satisfy the
requirements to exercise Option IV within the Option IV Exercise Period (as
same is extended pursuant to this Agreement) (i) the SMP Parties shall
retain all Extension Option Payments, (ii) RER shall have no right to
receive any portion of the Extension Option Payments or any credit or economic
benefit for or on account of the Extension Option Payments, and (iii) all
options under this Agreement and the Development Agreement shall terminate.


 


ARTICLE IX


 


Defaults


 


9.1           Events
of Default.  The occurrence of any
one or more of the following events shall constitute an Event of Default
hereunder.


 


9.1.1        The failure, refusal or
neglect of RER to properly observe, perform or comply with any covenant,
agreement or obligation contained in the Transaction Documents and the
continuation of such failure, refusal or neglect for fifteen (15) days after written
notice thereof has been given to RER by an SMP Party.


 


9.1.2        Any representation,
warranty or statement made by RER in this Agreement, the Development Agreement
or the Base Agreement by RER shall prove to have been incorrect in any material
respect when made or deemed to have been made and is not cured by RER within
ten (10) days after written notice thereof has been given to RER by an SMP
Party.


 


9.1.3        The filing or commencement
by RER of a voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or RER shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debt as they become due, or shall take any corporate
action to authorize any of the foregoing.


 


9.1.4        The filing or commencement
of an involuntary case or other proceeding against RER seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for
a period of ninety (90) days; or an order for relief shall be entered against RER
under the federal bankruptcy laws as now or hereafter in effect.


 


7

















 


9.2           Termination Consequences.  Upon the occurrence of an Event of Default
hereunder all options granted pursuant to this Agreement shall terminate.


 


ARTICLE X


 


Notices


 


Article XII
of the Base Agreement is incorporated herein and made applicable hereto.


 


ARTICLE XI


 


Miscellaneous


 


11.1         Article XIII of the Base Agreement is
incorporated herein and made applicable hereto.


 


11.2         Non-Exclusion.  The express incorporation of specific
provisions of the Base Agreement herein shall not limit the extent to which this
Agreement, the Development Agreement and the assignments made hereunder are
controlled by the Base Agreement.


 


IN WITNESS WHEREOF, the
authorized representatives of the parties have executed this Extension Option Agreement
as of the date first set out above.


 


	
   

  	
  ROCK ENERGY
  RESOURCES, INC. F/K/A

  
	
   

  	
  HANOVER GOLD
  COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Rocky V. Emery, Chairman and Chief

  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SANTA MARIA
  PACIFIC, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  David Pratt,
  Manager

  
	
   

  	
   

  
	
   

  	
  GITTE-TEN, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  David Pratt,
  Manager

  



 


8

















 


	
   

  	
  NW CASMALIA
  PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  David Pratt, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PHOENIX
  ENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  David Pratt, Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ORCUTT
  PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  David Pratt, Manager

  



 


9